“It’s Funny Because It’s Treason”: Global Markets Jittery As Trump Makes New Lows

We start Tuesday on a treasonous note…

So because he’s President, Donald Trump gets some intel.

And, at least according to some sources, Trump is often surprised at just how “great” the intel is.

And it turns out that maybe – just maybe – he got a little too excited when bragging about that tremendous intel to his friends Sergei Lavrov and Sergey Kislyak.

And maybe once he got all excited, he let a few things slip that he shouldn’t have. A few things about ISIS.

And maybe some folks are really, really worried about that.

But as the White House told us on Monday night, there’s actually nothing to worry about.

But markets probably will worry about it. Just a little bit.

“The dollar will ‘definitely’ weaken as the fall in U.S. Treasury yields and concerns about President Trump’s administration outweigh expectations for a Fed rate hike in June that are already priced in,” Jun Kato, a senior fund manager at Shinkin Asset Management in Tokyo told Bloomberg on Monday, adding that “the issue with Comey is likely to drag on, while the latest disclosure issue about Russia, if it develops into a bigger problem, will raise concerns about the U.S. administration and definitely be a dollar-selling factor.”

“Markets,” Kato continued, “may now be gradually reducing dollar long exposures.”

Traders said leveraged funds’ knee-jerk reaction to the Washington Post report (which can be found in the linked post above) was to sell USDJPY. In other words: “risk-off.”

Kuroda tried to salvage things with these two overnight zingers:

KURODA: OPEN TO MORE STIMULUS IF INFLATION TARGET ISN’T MET
KURODA: AT THIS STAGE NOT EXITING EXTRAORDINARY EASING PROGRAM

But it wasn’t enough to sway sentiment.

Even those of a bullish persuasion were forced to mention the Trump disclosures this morning. “Global economic data, from China’s PMI to U.S. CPI, seem to have peaked already, taking the steam out of reflation trades,” former FX trader Mark Cudmore wrote earlier today, before suggesting that “if oil analysts are correct, inflationary expectations will soon rise again, pushing bond yields higher despite the fallout from Trump’s Comey firing and his revelation of classified information to Russia.”

Here’s SocGen’s Kit Juckes weighing in:

The 10year Treasury/Bund yield gap hasn’t been below 190bp since 1 November last year, when US yields were rising on the excitement about Donald Trump’s election win. That euphoria is still visible in equity markets as the S&P 500 hit another all-time high yesterday at 2404, but the furore after news reports that the President shared highly-classified security information with the Russian foreign minister has prevented bond yields from rising in response to the equity market mood and allowed EUR/USD to nudge above 1.10 again. Nominal yield spreads continue to point upwards though there are two caveats to mention. Firstly, that the currency is still moving faster than the yield moves and needs higher Bund yields to provide some confirmation. Secondly, the move isn’t as impressive if I look at real yields, as US 10-year breakevens are at 1.85% now, also their lowest since November. As a result, the EUR/USD advance is likely to continue to be a case of two steps up and one step down.

So basically, we’ve got to hope oil prices rise in order to keep the reflation dream alive because Trump leaking classified information about Sunni extremists to Sergei Lavrov is weighing on bond yields. Let the surreal nature of that shit sink in for a minute.

Speaking of oil, crude held onto gains from Monday’s Khalid Al-Falih/ Alexander Novak headline fest which all but confirmed an extension to the production cuts.

Despite riding its longest winning streak in more than a month, the story is the same as it ever was. “The comments from Saudi Arabia and Russia are driving prices up, but I’m skeptical that crude will see a new level,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc., told Bloomberg by phone. “As producers in the U.S. are expected to increase output, prices will continue to be restricted from rising.”

Meanwhile, we got UK CPI data. Here’s the breakdown: